The Battle for Libya’s Only Resource

Libya’s oil could help knit the country back together — or tear it apart for good.

Oil is Libya’s lifeblood. The country has virtually no other industries or formal employment; oil is its only business. According to the World Bank, oil revenues account for over 95 percent of the government’s budget. And since about 80 percent of Libyans are on the government payroll, it is no exaggeration to say that oil feeds and clothes the Libyan people. No other country is so dependent on a single resource.

This is especially troubling when you consider that Libya is mostly desert, lacking significant arable land — it can’t grow its own food. “Without hydrocarbons revenue, the viability of the Libyan state is very much in question — which is what we are on the cusp of seeing first hand,” said Geoff Porter, a North Africa risk consultant and assistant professor at West Point. “If there are no export earnings, there’s no money, and if there’s no money, there’s no food.”

As the Libyan civil war has deepened over the past year, these all-important export earnings have plummeted — output now stands at about a quarter of former dictator Muammar al-Qaddafi-era production. A key oil exporting port was shuttered by fighting just this Tuesday, further exacerbating the problem. Since oil is just about the only thing in Libya worth fighting over, much of the war is now focused around that — with devastating consequences for the industry. If the conflict is not resolved, the fate of the Libyan people — and perhaps the very existence of Libya — will be in doubt.

Since May 2014, Libya has had two competing governments. When the House of Representatives (HOR) was elected in June of last year, voter turnout was low, and the Islamist and militia blocks didn’t feel fairly represented. In response, the General National Congress (GNC) — the former parliament — reconvened in Tripoli and claimed to be the only legitimate representative body of the Libyan people. The HOR, which claims the same — and is the only one of the two governments to be internationally recognized — was exiled to the eastern city of Tobruk.

As the Libyan government split in half, most institutions split as well, with mirror versions being set up in the East and the West. Both governments appointed judges to their respective judicial systems, ran their own central banks, and maintained separate military forces.

Perhaps the most important split was that of the National Oil Company (NOC), Libya’s government-owned oil producer and exporter. Given the primacy of oil in Libya’s economy, the NOC is the key to the country. While its headquarters has always been in Tripoli, Tobruk announced the creation of its own eastern NOC in December, declaring that all oil firms must deal solely with it. After all, it argues, the eastern NOC is the one associated with the internationally recognized government.

At a U.N. Security Council meeting in March, diplomats passed a resolution declaring the most important of Libya’s state agencies — especially the National Oil Company — would remain independent and deal impartially with both rival governments. At the time the resolution was signed, most of the oil and exporting ports were under Tobruk’s control, while all contracts and payments were routed through the national institutions in Tripoli. The resolution committed to maintaining this status quo: Revenue would be split between the two governments, and since neither could function without the other, an uneasy union would be maintained.

But in the weeks and months that followed, it became clear that the resolution signed in March had little meaning on the ground. Tobruk forged ahead with its plans to set up its own NOC while Tripoli protested, insisting all oil contracts must continue to route through them.

Like its equivalents in Algeria and Egypt, Libya’s NOC functions both as a producer and regulator. Because it lacks the knowledge and expertise to drill for oil itself, it typically partners with foreign oil companies to exploit resources. The agency is charged with obtaining the best deals possible with foreign partners, while also overseeing resource management and production. The role requires extensive experience and bureaucratic finesse, something that only the established NOC in Tripoli can realistically claim to possess.

But Tobruk hasn’t relented. In August, it appointed Nagi El-Maghrabi, an engineer from a Libyan oil company, as the NOC’s new chairman, in the hope that he could succeed where his predecessor had failed: securing oil contracts.

With its new chairman at the helm, the would-be Tobruk NOC has set out on a full-scale campaign to convince oil companies to bring their business to the east. At a conference held in Malta in September, El-Maghrabi told the small crowd of potential foreign investors that its NOC had set up bank accounts in Dubai and Egypt and is prepared to bypass Tripoli completely.

While no large oil companies attended the conference, the eastern NOC laid out a convincing case to the smaller ones gathered. Technically, it does represent the only internationally recognized government in Libya. It also controls all the major export terminals in the country, the chairman reminded them.

“We are warning the international companies against dealing with the illegal management,” El-Maghrabi told reporters at the conference, referring to Tripoli. “We haven’t stopped these loadings so far so as not to harm the livelihood of the Libyan people, but we don’t want this illegal situation to continue.”

So far, most foreign oil companies — including the largest, such as Britain’s BP, Italy’s Eni, and France’s Total — have chosen to continue dealing with Tripoli over the internationally recognized government in Tobruk. The legal contracts that govern Libya’s oil are expensive and binding, and firms are leery of putting them in Tobruk’s inexperienced hands, said a former employee of the Arabian Gulf Oil Company (AGOCO), a Libyan firm.

“Tobruk has a lack of knowledge to run a NOC,” said the employee, who declined to be named to protect his safety. He noted that El-Maghrabi has worked in a large Libyan oil company before, “but he has been absent from the field for several years, so he doesn’t have experience. Before this he was just an engineer, not even a head of section. They need expertise. [Tobruk’s current prime minister Abdullah] Thinni is a military guy, so he doesn’t understand how all this works.”

The U.N. special envoy to Libya, Bernardino León, has worked feverishly to convince Tripoli and Tobruk to sign a peace agreement that would end the fighting. León has come up with several consecutive plans, describing each one as the last, final peace agreement. But he hasn’t been able to persuade both governments to sign onto any one deal, and deadline after deadline has passed without resolution. On November 4, the U.N. announced that Martin Kobler, a German diplomat, would replace León in the coming days. Kobler faces the unenviable task of trying to restart negotiations between governments held hostage by militias who refuse to recognize their rivals as legitimate. Further complicating matters, the Tobruk government’s elected term expired on Oct. 20, putting in jeopardy its status as the only government officially recognized by Western nations, including the United States.

If passed, any peace deal will include provisions for appointing singular heads of all government agencies, including the NOC. On paper, this would stitch Libya back together — but Tobruk has already demonstrated its disregard for such agreements. It is still actively seeking to draw clients to its rival NOC.

Thus far, it hasn’t succeeded in finalizing any deals (at least publicly) — but this could change if it manages to further consolidate its hold on oil production and export facilities. El-Maghrebi recently said that the eastern NOC is planning to ship a million barrels of crude oil to buyers next week.

Tobruk is also making good on its threats to shut out Tripoli. On Nov. 3, it closed the key oil export port of Zueitina, one of the biggest in the country. This has forced Tripoli to notify its buyers that it may not be able to fulfill its contractual obligations. Regardless of what is decided in any future negotiations, Tobruk has shown that it can use its muscle to deny its rival access to all-important export facilities — and this may prove decisive. “The most attractive NOC to foreign oil companies is going to be the NOC that appears to have the most control over the oil itself,” said Christopher Chivvis, associate director of the International Security and Defense Policy Center at RAND.

On the ground, the conflict involves far more than just the two bickering governments. Libya is composed of dozens of tribes, each with its own shifting interests and allegiances. “There’s a question about the extent to which the political forces actually have control over the important militias on the ground,” said Chivvis. “I think all this comes down to who controls the oil; it comes down to alliances on the ground. Which political forces control which sites within Libya.”

Ibrahim Jadhran is a perfect — and crucial — example. The 35-year-old was a militia leader during the 2011 revolution, and was appointed commander of the Petroleum Defense Guards by the still-unified transitional government in 2012. Originally from the eastern city of Ajdabiya, the rogue militia leader is an outspoken advocate of a federal system for Libya and frequently uses his power to open or close oil ports, shutting off oil exports — and therefore salaries — when he disagrees with either government.

“One of the initial causes for the plummeting of Libyan oil production was the blockade imposed by Ibrahim Jadhran in August of 2013,” said Porter. The commander has continued the tactic of stoppages in defiance of both regimes, even trying to steal a tanker full of crude to sell on the black market. The ship was finally stopped by the U.S. Navy off the coast of Cyprus.

Jadhran’s power is not to be underestimated. In fact, according to local media reports, it was actually him, and not the Tobruk government, that closed the Zuetina port. As Porter points out, it is Jadhran — not Tripoli or Tobruk — who truly controls exports.

“There’s this disconnect between the individuals on the ground who are struggling for control of these different hydrocarbon assets and the different set of people in Tripoli who control the bureaucratic institutions that actually turn that crude into money,” he said. “Even if we do have a national unity government, it’s very possible that the same forces that led to the collapse of the hydrocarbon sector prior to the outbreak of civil war will re-emerge.”

Ultimately, neither the U.N., nor Tobruk, nor Tripoli will determine Libya’s political and economic fate: the militias and tribes will. “If you want to do anything in Libya, you have to involve the local tribes, the local community,” the former AGOCO employee said.

“The politicians — they don’t really matter.”

The photo shows an offshore oil platform at the Bouri Oil Field off the coast of Libya on August 3, 2015.

Photo credit: REUTERS/Darrin Zammit Lupi

Corrections, Nov. 5, 2015: A previous version of this article incorrectly identified the former U.N. special envoy to Libya; his name is Bernardino León, not Leon Bernardino. Nagi El-Maghrabi was made NOC’s chairman in August; a previous version of this article mistakenly stated he had been appointed to that position in July. AGOCO stands for the Arabian Gulf Oil Company; a previous version of this article mistakenly referred to it as the Arabian General Oil Company. Christopher Chivvis works at the International Security and Defense Policy Center at RAND; a previous version of this article mistakenly referred to the center as the International Security and Defense Center. Ibrahim Jadhran is 35 years old; a previous version of this article mistakenly said that he is 34.